Macro data slashed oil down
Crude oil erased more than 12% from 2023’s high of $82.66 and went under the $73 price tag. In other words, the black gold erased all gains since the beginning of the year. The most significant part of this move had several macros: Fed’s rate decision, the OPEC+ meeting, and surprisingly good Non-farm payrolls.
The latest Fed meeting did not bring any surprise with a 0.25% hike. Current interest rates are at the level of 4.75%. Despite the dovishness in the speech of Fed’s chair Powell, markets did not intake this dovishness, and USD appreciated throughout all sectors, including crude oil.
Moreover, OPEC+ decided to pump less oil, 920,000 barrels per day, than agreed. In general, a lesser number than the consensus has positive effect for the price of a commodity. But the demand in China is still a hugequestion, and despite the strategy to keep the price up, uncertainty underlined the development of crude oil.
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The last factor of recent days was non-farm payrolls in the U.S., where the current number hit 517,000, but the consensus was 185,000. Extremely optimistic numbers from employment sparked more optimism for the U.S. currency and the dollar continued in further appreciation.
Support has been broken
The support created from monthly developing VWAP and pivot lows, which was pointed out earlier in this article, has been broken thanks to the strong macros mentioned above. Even though the reaction of the price of crude oil around this level has been seen, the strength of negative sentiment sent the commodity down. Technically, the closest support could be around the level of $70.30 as a one-year minimum from February 2022. In the case that this support will not hold the price, there could be an open way to the range of $55-$70.
Depreciation of the commodity has left several resistance levels. The closest possible could be $73.50. Next, more important, is around $76.50, as the highest traded volume of this month and simultaneously cumulated activity before the latest drop on Friday. The last resistance can be the last month’s VWAP at $78.62.
30 minutes chart of CL, Monthly VWAP. source: author’s analysis
Fear of lower demand
The price of crude oil did quite a drop, because of the stronger U.S. dollar and fear of weak demand in the biggest market for crude, China. Based on Bloomberg, ministers of OPEC+ countries, mostly from the Middle East assured that the current situation in crude oil demand in China is just short-term and no big damages are seen. On the contrary, markets see this differently, for now. Recession is a very current topic in all economies of the world, and higher inflation is seen in China’s statistical data as well.